Bitcoin is more trustworthy than some academic critics

Prof Larry White takes on the academic critics on bitcoin:

Historian Harold James of Princeton University, known for his scholarly writings on the gold exchange standard and on the euro, has turned his attention to Bitcoin in a recent Project Syndicate commentary on “The Bitcoin Threat.” His commentary labors under a surprising number of misconceptions about Bitcoin and the history of privately issued currency. If even a reputable academic historian falls prey to these misconceptions, they are likely to be widespread. Scrutinizing them may then be of wider interest.

After noting some of the optimistic claims made on behalf of cryptocurrencies and the blockchain technology underlying them, James cautions us:

But others are rightly suspicious that this new technology might be manipulated or abused. Money is part of the social fabric. For most of the history of human civilization, it has provided a basis for trust between people and governments, and between individuals through exchange. It has almost always been an expression of sovereignty as well, and private currencies have been very rare.

To say that government-issued currencies have “provided a basis for trust,” and to imply private currencies have not, is a curious summary of centuries of monetary history. Anyone familiar with the long history of debasements by ancient and medieval government mints, or with the history of fiat money inflations by modern government central banks, knows that governments have often been untrustworthy issuers. Sovereigns have frequently abused rather than rewarded trust in their currencies. (To his credit, James does later observe that “bad states produce bad money.”) Indeed a key service that attracted medieval merchants to private bankers was their more trustworthy payment alternative to the variously debased government-issued coins, namely a ledger-based system where transferable account balances were denominated in units of unchanging silver content. Historians later called these stable private accounting units “ghost monies” because they were not embodied in any of the debased contemporary coins.

James’ statement that “private currencies have been very rare” is simply untrue. It is a surprising misconception for a financial historian to hold. Private silver and gold coins were historically rare, it is true, because governments have legally suppressed private mints to give their own mints monopoly privileges. But during the 18th and 19th centuries, redeemable paper currency became more popular than coins in modern economies, and the majority of paper currency in circulation in most countries consisted of privately issued banknotes. Kurt Schuler and Will McBride report that more than sixty countries have had periods of competitive private note-issue, so it was hardly a “very rare” experience.

I was myself surprised to read the piece from Prof. James…

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